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Canada’s trade surplus in March increased but remained negligible

05/10/2012 by Alex Carrick, RCD Canadian Chief Economist

Because Canada’s imports (-0.6%) in March declined a little faster than the drop in exports (-0.4%), the nation’s merchandise trade surplus increased slightly to $4.2 billion Canadian annualized from $3.3, according to Statistics Canada.

A surplus of $4.2 billion, however, is a trifling affair compared with what Canada was used to experiencing before the recession. Prior to the fall of 2008, the goods trade balance was almost always +$40 billion to +$80 billion.

The negligible trade balances Canada has been running for the past three-and-a-half years have seriously detracted from gross domestic product growth.

Since most of our trade is with the United States, the hope is that the improving American economy will lift our exports. This will undoubtedly happen, but one should perhaps rein in expectations about the degree of improvement.

There have been some changes in our two economies in recent years.

For starters, our forestry sector has suffered along with the weak housing starts south of the border. An improvement in U.S. homebuilding is coming, but it’s likely to proceed in baby steps over the next considerable while.

The U.S. used to import large volumes of Canadian natural gas. But the U.S. has greatly increased its own reserves in that product area, thanks to the opening up of deposits in shale rock.

The increase in gas supply has led to a low price level that has exacerbated the export volume decline for Canadian producers. The dollar value of first quarter natural gas imports in the U.S. was -38% when compared with the January to March figure from last year.

The warm weather at the start of this year was also a contributing factor to the drop in shipments.

Canadian oil exports are still in strong demand south of the border. In fact, Canada’s total energy product exports were +16.5% year to date in March. But even in this commodity category, the future does not seem as assured as in the past.

The kerfuffle in Washington over whether or not to approve the Keystone XL pipeline has left many wondering just how dependable the U.S.-Canada trading partnership really is in some key areas if political expediency can so easily trump other considerations.   

The U.S. auto sector has bounced back from the brink. Consumers are buying cars and light trucks in large numbers. This means an increase in production at Canadian auto plants to supply U.S. consumer demand.

But here as well, the international flow of goods has been undergoing modification.

By a two-to-one margin versus Mexico, Canada is the largest market for U.S. exports of motor vehicles and parts.

But when it comes to trade in the other direction, Mexico has supplanted Canada as the largest source of U.S. auto imports.

Through March, U.S. auto sector imports from Mexico exceeded the value from Canada by 12%.

Not only is the competition coming from Mexico. Japan is a major factor as well. U.S. auto imports from the Land of the Rising Sun have almost exactly matched Canada’s contribution so far this year.

Furthermore, while the trade balance in motor vehicles between Canada and the U.S. is only mildly in favor of the latter, such is not the case for other nations. Mexico and Japan supply far more in the way of auto-related goods to the U.S. than they accept back into their home markets.

This is also true for two other nations – Germany and South Korea, although the recently signed free trade agreement with the latter is supposed to help rectify that situation.

As for the rest of Canada’s manufacturing sector, there is some irony in our trade difficulties.

The fact the developing world wants our raw materials has been a factor in raising the value of the Canadian dollar. It’s that very exchange rate hike relative to the greenback that is inhibiting some of our manufacturers from making more U.S. export sales.

The bottom line is that Canada needs to pay heed to the clamor from other parts of the world for our products and resources. That means lining up customers in Asia and elsewhere overseas for our fossil fuels, agricultural products and metals and minerals.

An improvement in one crucial pillar of our economy, our merchandise trade balance, is dependent on it.

Canada’s foreign trade: the merchandise trade balance
Canada’s foreign trade: the merchandise trade balance
Based on seasonally adjusted monthly figures, projected at an annual rate.
Analysis of Canada's foreign trade position usually focuses on the Merchandise Trade Balance which is goods exports minus goods imports.
Data source: Statistics Canada / Chart: Reed Construction Data - CanaData.
Canada's trade by major goods and commodities - March 2012
Latest Period   Year to Date
feb 12 mar 12     Jan-MAR 11 Jan-MAR 12  
(Cdn $ billions) % Change   (Cdn $ billions) % Change
Agricultural and Exports 3.553 3.539 -0.4%   9.510 10.879 14.4%
fishing products Imports 2.759 2.829 2.5%   7.912 8.358 5.6%
Balance 0.794 0.710 -10.6%   1.598 2.521 57.8%
Energy Exports 10.821 9.857 -8.9%   27.693 32.270 16.5%
products Imports 5.018 4.272 -14.9%   12.258 13.576 10.8%
Balance 5.803 5.585 -3.8%   15.435 18.694 21.1%
Forestry Exports 1.776 1.771 -0.3%   5.641 5.327 -5.6%
products Imports 0.205 0.214 4.4%   0.611 0.641 4.9%
Balance 1.571 1.557 -0.9%   5.030 4.686 -6.8%
Industrial goods* Exports 9.330 9.910 6.2%   27.751 28.516 2.8%
and materials Imports 8.445 8.107 -4.0%   22.999 24.806 7.9%
Balance 0.885 1.803 103.7%   4.752 3.710 -21.9%
Machinery and Exports 6.670 6.899 3.4%   19.137 20.189 5.5%
equipment Imports 10.547 10.793 2.3%   29.984 32.030 6.8%
Balance -3.877 -3.894 0.4%   -10.847 -11.841 9.2%
Automotive  Exports 5.372 5.333 -0.7%   14.736 16.762 13.7%
Products Imports 6.252 6.543 4.7%   17.850 19.434 8.9%
Balance -0.880 -1.210 37.5%   -3.114 -2.672 -14.2%
*Industrial goods include metals and minerals.
N/A or "not applicable" is when the signs don't match or the per cent is too high.
Data source: Statistics Canada (based on seasonally adjusted current dollar monthly figures).
Table: Reed Construction Data - CanaData.


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